This article will serve as an introduction to the topic of creditors’ access in regards to non probate assets. For a refresher on probate click here.
When a family member dies and the appropriate relatives begin to go through the probate process it’s normal to have a lot of questions. Confusion over first steps, what comes next and what the process entails can increase stress during an already stressful time. One question that can arise if the deceased person owned debt, often in the form of credit card debt, is whether the close relatives are personally responsible for that debt. It’s not uncommon for creditors to begin calling family members in an effort to collect on the deceased person’s debt.
Other questions that may arise include: What happens to the deceased person’s mortgage? If money is left to a family member can he or she collect regardless of debt owed by the deceased? Can a creditor go after the debtor’s non-probate assets or other family member’s assets?
Let’s briefly review what is considered probate and non-probate assets. Probate assets can be considered pretty much anything in/under the decedents (deceased person’s) name. Think bank accounts, cars, property, etc. Non-probate assets are those held with a beneficiary designation (think a mother designated her spouse or child to receive xyz) or held as joint tenants, like in the case of jointly owned property. For more information on probate versus non-probate assets and differentiating what assets my go through probate and what assets are outside of probate click here.
When a creditor would not go after non-probate assets.
Creditors do have the right to file a claim against an estate in an effort to collect payment to pay off all or some of a debt. In this situation, probate assets would be used first in order to pay off any outstanding debt prior to heirs receiving the remaining probate assets. For example, if John died and had two-hundred thousand dollars in debt and had three-hundred thousand dollars in probate assets, two-hundred thousand would go towards paying off the debt with one-hundred thousand dollars remaining and there would be no need for the creditor to go after non-probate assets.
When a creditor might go after non-probate assets and what rights do the creditors have?
As stated before, creditors have the right to file a claim against an estate to pay off the decedent’s debt. Even if money is distributed to heirs before the collection of probate assets against the deceased debts, a claim can still be filed by the collectors to regain the money and pay off the debt. In this situation, the claim would be against either the heirs or the estate executor or personal representative. But what if the amount of debt exceeds the deceased person’s assets? A creditor can look into non-probate assets, which is a common occurrence if there is any indication that the decedent’s estate was large, or if it’s believed that the deceased person moved money around to avoid paying debt. A simple example of this would be the deceased person putting a large sum of money, let’s say $150,000.00, into a jointly held bank account before dying. The creditor can still file a claim and ask that some or all of that transferred money be used to pay off the debt. For more information on creditors’ claims against entities such as trusts, retirement accounts and more, visit Learn About Law.
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